New Book Questions How the Government Will Repay the Spent Social Security Money

WINTER HAVEN, Fla., Jan. 5, 2011 /PRNewswire/ -- The United States government owes more than $2.5 trillion to the Social Security trust fund, says economist and author Allen W. Smith, Ph.D.  The debt has been accumulated over the past 25 years as the government spent all surplus Social Security revenue for general government operations.  The surplus revenue, generated by the 1983 payroll tax hike, was supposed to be saved and invested to build up a large reserve in the trust fund with which to pay benefits to the baby boomers, Smith says. But, instead, the money was all "borrowed" by the government and replaced with IOUs.  These IOUs have no real economic value, and they cannot be used to pay future benefits.  They are simply claims against future tax collections.  

Smith believes the large Social Security debt is the primary motivation behind calls for benefit cuts.  If the government had saved and invested the Social Security surplus, as was the intent of the 1983 legislation, full benefits could be paid until 2037, and there would be no urgency to "fix" Social Security now.  But, beginning in 2015, full benefits cannot be paid unless at least part of the surplus money is repaid.  To repay the debt, the government must 1) borrow more money from the public, 2) cut spending on other government programs, or 3) raise taxes.  Given the fact that the national debt has skyrocketed from $1 trillion in 1981 to almost $14 trillion today, Smith rules out borrowing as a viable option.  He also thinks it would be politically impossible to get Congress to agree to enough cuts in other programs to repay the money. That leaves higher taxes as the only other option for raising the $2.5 trillion, and Professor Smith doubts that the public and Congress would support such a large tax increase, unless the public becomes so outraged that members of Congress become convinced that defaulting on the debt to Social Security will have a higher political cost than raising taxes.          

"THE LOOTING OF SOCIAL SECURITY, New release of the book 'they' didn't want you to read," By Allen W. Smith, Ph.D., 272 pp. Ironwood Publications, paperback, $17, ISBN 978-0-9770851-9-4.  Available from your favorite bookstore.

SOURCE Ironwood Publications